This is the fourth post in our series about choosing and implementing an enterprise resource planning (ERP) system. In our previous blogs, we covered how to identify your ERP requirements and how to hire a top-notch controller. Now we'll cover how to choose the right ERP system for your business.
Once you’ve identified your need for an enterprise resource planning (ERP) system, put an ERP project team in place with a skilled controller at the helm, and identified your business requirements, it’s time to start the ERP evaluation and selection process.
As you wade through lists of vendors, keep in mind that the “best” ERP platform is one that’s the best fit for how your company operates, taking into account your industry, company size, and required capabilities. Look for established companies with proven records in your industry. Ask for, and be sure to speak with, reference customers. Talk to peers within your professional network about their experiences.
“I spent a lot of time in conversations, not just with NetSuite referrals and indirect referrals, but also with referrals that I sourced myself,” says Brian Acks, head of finance at Routable customer Vouch Insurance, which selected NetSuite ERP. “I wanted to make sure I was getting relatively unbiased opinions about possible deal breakers and pain points. I got the most value from talking to other finance executives in the tech community.”
Here are some tips to help you formulate selection criteria so you can narrow the field to a manageable list of vendors.
1. Determine your must-have features
With your requirements document in hand, you can start to evaluate different offerings. Many companies start by issuing a request for information (RFI) describing what they’re hoping to accomplish and asking vendors to describe their offerings. The RFI is usually followed by a detailed request for proposal (RFP) or request for quote (RFQ). You might want to bring on an outside consultant with both finance and ERP systems implementation expertise to help you compile these documents and evaluate options based on their experience.
Your requirements document will also help you prioritize the modules and features you need immediately, and which are less essential. Most ERP systems start with core financial management and accounting so that you can automate accounting and get real-time visibility and insights into cash flow, expense reporting, and other key performance indicators (KPIs).
Product-focused companies might want to add modules for procurement, supply chain management, inventory management, manufacturing, order management, warehouse management, and fulfillment. E-commerce companies may want to consider modules specific to e-commerce support, while services businesses often take advantage of professional services automation (PSA) and resource management.
Many ERP systems also offer advanced modules and features for customer relationship management (CRM) and marketing automation, as well as human capital management (HCM)/human resources management (HRM). If you don’t have the budget for these features right away, you might still want to evaluate how easily you can add them later as your business grows.
Lastly, companies may need features that help them comply with accounting standards or other regulations. “My top requirement was a system that was compatible with ASC 606 and could handle sophisticated revenue recognition requirements,” says Mina Samaan, who managed an end-to-end implementation of NetSuite when he was head of accounting at Luminary.
2. Consider initial and ongoing costs
An ERP system is one of the largest investments a company can make. As you consider different ERP offerings, make sure you understand the initial price tag.
But how do you know what a good initial price tag looks like? Typically, your first year contract should include:
- Recurring license and user costs. Is it user-based, module-based, or both? Typically SaaS solutions are a hybrid of both, but make sure to get clarification on this.
- Implementation costs. Is the price fixed, or based on time and material?
Also, make sure you understand the total cost of ownership. Don’t forget to factor in subscription and integration costs for the remainder of your systems landscape.
By the same token, remember that an ERP system is an investment that will be a huge part of your business for many years to come.
“When we started looking for an ERP system, we wanted one that could grow with us, so that in 20 years, we don’t have to spend a lot of money to get a new ERP and all the headaches that come with transitioning systems,” says Antonio Corona, director of finance at Kasa, which chose NetSuite for its ERP system.
Think seriously before choosing a new, unproven system simply because it’s the cheapest, rather than a solution from a vendor with years of successful experience. Ask about:
- Implementation costs. Every ERP implementation is different. Make sure you know if there are aspects of your project that might result in additional costs.
- Subscription costs. If you’re considering a cloud-based ERP system managed by a third-party, understand the cost structure: upfront costs, monthly costs, and the cost of changes.
- Maintenance and updates. As you grow, your needs will change. How does the vendor handle not only ongoing maintenance but adding new features, business processes or additional users?
- Ongoing support. Find out what the vendor’s basic support package includes, as well as additional support.
- Training. Even the greatest ERP solution will be worthless if employees don’t know how to use it. Determine what the vendor charges, if anything, for training. Can the training happen on site, or do employees need to travel to get it, which will incur additional costs?
A budget that sets realistic expectations for an ERP system’s total cost of ownership can mean the difference between the success and failure of an ERP implementation project. An ERP consultant can help you evaluate and negotiate costs.
3. Evaluate how your potential ERP vendor handles implementation
ERP implementation projects may seem daunting, but with the right vendor and partners, they can go very smoothly. Take the time to find out how a potential vendor handles implementation. How will they translate your business processes into automated workflows? This level of granularity is key to document.
Of course, your implementation plan will be based in large part on your deployment model. The implementation of an on-premises ERP system, where a company runs the ERP software on its own infrastructure, is going to look much different than the deployment of a cloud ERP system that runs on the vendor’s servers.
“For us, a big highlight of NetSuite is that it’s a cloud service,” says Corona, “It’s not specific to Kasa and doesn’t have to live on our servers. We don’t have a traditional IT team, so we don’t have a lot of bandwidth to maintain the system.”
Vendors have a vested interest in ensuring the success of your ERP implementation, which is why the majority have professional services organizations that have extensive experience implementing their solution in different industries, and for unique business requirements. For example, Oracle NetSuite offers SuiteSuccess, a methodology for NetSuite implementations that builds on expertise amassed over two decades. NetSuite adopted the SuiteSuccess methodology to allow for <100 day implementations, which drives faster ROI for their clients.
Also take into consideration the makeup of your in-house ERP implementation team. If your company doesn’t have a deep “bench” with an experienced controller, you might consider availing yourself not only of a vendor’s professional services team but a third-party integration partner as well.
4. Consider bringing in an integration partner
One of the most important selection criteria in choosing an ERP system is how well it integrates with the financial systems, applications and hardware you already have. In other words, the system needs to play well with others. See whether the solution has open application programming interfaces (APIs) to facilitate integration with custom and commercial solutions. If it can’t integrate easily with, say, the scanners you use in your warehouse or business payments software like Routable, you need to know that up-front.
“It was important for us to have a system that had good API connectivity,” says Corona. “This lets us remain dynamic and fluid as our business grows. NetSuite has developed APIs with a lot of other SaaS tools that are specific to accounting. A big win for us was being able to connect our revenue automation.”
If you know that your business has important integrations that need to be part of an ERP implementation, start reviewing potential integration partners as part of your ERP selection process. These firms can give you expert advice.
For example, companies like Business Solution Partners that are part of the NetSuite Solution Provider Program deliver complete NetSuite solutions, from NetSuite licenses to implementation and support. And the NetSuite Alliance Partner program provides integration and implementation services that help companies get even more value from their NetSuite software.